On Dec. 1, 2006, Standard&Poor's Rating Services affirmed its 'BB' long-term foreign, 'BB+' long-term local, and 'B' short-term currency sovereign credit ratings on the Republic of Costa Rica. The outlook on the long-term ratings is stable. Costa Rica's ratings are constrained by its: Fiscal inflexibility. A narrow tax base has forced the government to curtail spending in recent years in order to contain the fiscal deficit. Spending restraint, combined with recently buoyant GDP growth that has boosted fiscal revenue, should help maintain budgetary stability in the near term. However, strong political pressure to reverse spending cuts in infrastructure and to provide more public services, especially education, could weaken Costa Rica's fiscal position in coming years, absent tax reform.
